Deduction for interest on borrowed funds upheld where borrowing and lending had a proven one-to-one nexus under income from other sources.

Interest paid on borrowed funds used for lending to the same borrower was held deductible against interest income assessed under the head "income from other sources" under section 57(iii) of the Income-tax Act, 1961. The one-to-one nexus between the borrowing and the lending had already been accepted in the preceding assessment year on the same factual matrix, and the current year involved the same transaction pattern with only a different amount. On that basis, the assessee was not required to re-establish the nexus again, and the interest expenditure remained allowable.

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Issues: Whether the assessee was entitled to deduction of interest paid to the bank under section 57(iii) of the Income-tax Act, 1961 against interest income assessed under the head "income from other sources".

Analysis: The borrowed funds had been advanced to the same borrower and the resulting interest income was taxed under "income from other sources". The claim had already been examined in the earlier assessment year on the same factual matrix, where the one-to-one nexus between the borrowing and the lending was accepted and deduction for interest paid to the bank was granted. Since the current year involved the same transaction pattern and only a different figure, the assessee was not required to re-establish the nexus again.

Conclusion: The assessee was entitled to deduction of the interest paid to Allahabad Bank under section 57(iii) of the Income-tax Act, 1961.

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